Describe the accounting treatment for convertible debt and for debt issued with detachable stock warrants. How does the treatment differ and what justification does FASB use for requiring different treatment?.

Describe the accounting treatment for convertible debt and for debt issued with detachable stock warrants. How does the treatment differ and what justification does FASB use for requiring different treatment?.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

Problem 21GI

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Describe the accounting treatment for convertible debt and for debt issued with detachable stock warrants. How does the treatment differ and what justification does FASB use for requiring different treatment?.

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Discuss the similarities and the differences between convertibledebt and debt issued with stock warrants.
Both convertible bonds and bonds issued with detachable warrants have features of both debt and equity. How does the accounting treatment differ for the two hybrid securities? Why is the accounting treatment different?
On a balance sheet, what valuation must be reported for debt securities classified as available-for-sale?
Under IFRS, convertible bonds: a. are separated into the bond component and the expense component. b. are separated into debt and equity components. c. are separated into their components based on relative fair values. d. All of the above.
Which of the following statements is correct?(a) IFRS separates the proceeds of a convertible bond between debt and equity by determining the fair value of the debt component before the equity component.(b) Both IFRS and GAAP assume that when there is choice of settlement of an option for cash or shares, share settlement is assumed.(c) IFRS separates the proceeds of a convertible bond between debt and equity, based on relative fair values.(d) Both GAAP and IFRS separate the proceeds of convertible bonds between debt and equity.
Which of the following statements is correct? a. IFRS separates the proceeds of a convertible bond between debt and equity by determining the fair value of the debt component before the equity component. b. Both IFRS and GAAP assume that when there is choice of settlement of an option for cash or shares, share settlement is assumed. c. IFRS separates the proceeds of a convertible bond between debt and equity, based on relative fair values. d. Both GAAP and IFRS separate the proceeds of convertible bonds between debt and equity. 3. Under IFRS, convertible bonds:
Explain how the conversion feature of convertible debthas a value (a) to the issuer and (b) to the purchaser.
Which of the following is false? A. Under PFRS 9, the basis of carrying investments in debt securities as FVPL, FVOCI, or at amortized cost, is the entity’s business model. B. Under PFRS 9, an investment in equity securities not held for trading is automatically accounted for as FVOCI. C. Reclassification of investment in equity securities under PFRS 9 is not allowed. D. Under PFRS 9, reclassification of investment in debt securities is allowed. Or none of the choices?
how are convertible bonds measured initially on the balance sheet?